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Dollar Holds its Range as Traders Look to SPX and NFPs as Loaded Catalysts

Dollar Holds its Range as Traders Look to SPX and NFPs as Loaded Catalysts

2015-03-04 04:35:00
John Kicklighter, Chief Strategist
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Talking Points:

  • Dollar Holds its Range as Traders Look to SPX and NFPs as Loaded Catalysts
  • Euro: Is There More Easing from a Well-Priced ECB Stimulus Program?
  • Australian Dollar Refuses to Break 0.79 Despite RBA Hold, Data, China Improvement

Dollar Holds its Range as Traders Look to SPX and NFPs as Loaded Catalysts

Event risk to start this week has not been concentrated enough to drive the Dollar from its five-week range. Monday’s round of economic indicators was the most potent hit. Manufacturing and construction activity reports bowed to the personal income and spending data for January. Spending eased, but adjusted for inflation driven by items like cheaper gas prices, this foundation for GDP actually grew (0.3 percent). More interesting from this mix was the income component which reinforces the earnings figures seen in the January NFPs data run with another 0.3 percent increase. As for the inflation statistics that are derived from this consumer data – the Fed’s preferred PCE measures – the core figure held steady at 1.3 percent. Moving forward, the focus for Dollar traders should remain on two particular themes: counterpart strength and anticipation for Friday’s labor data. With the ECB set to activate its QE program this week, the PBoC surprising with a cut over the weekend and other major counterparts keeping a weak path; the Dollar looks slightly more attractive each day. But that marginal gain in popularity will be dampened as traders nervously await the Bureau of Labor Statistics to report February jobs numbers.

Euro: Is There More Easing from a Well-Priced ECB Stimulus Program?

The Euro faces a similar quandary to the Dollar: how efficiently have the markets priced in future policy changes? For the Greenback, the market is trying to price the probability and impact of a rate hike sometime ‘mid-2015’. For the Euro, the question is how much depreciation should be wrung from the introduction of a QE program. The ECB confirmed an open stimulus program at its last meeting and speculation of its arrival drove the currency down well in advance of the approval. So, how much further does the market run on established trajectories? That depends on the bearings of its counterparts, the details (particularly triggers for upgrade) of the program and the revival of other factors like Greece.

Australian Dollar Refuses to Break 0.79 Despite RBA Hold, Data, China Improvement

A range of fundamental event risk these past 48 hours has contributed to a measurable improvement in the Australian Dollar’s prospects. And yet, AUDUSD has proven incapable of returning to 0.7900 – much less overtake it. An unexpected hold from the RBA led some doves to shake some of their bearish exposure while 4Q GDP figures that were generally inline with a moderate trend of expansion offer a foundation for the carry currency. Meanwhile, better than expected Chinese PMI figures and easing by the PBoC engendered limited indirect strength.

Chinese Renminbi Hits 6.30 Versus Dollar After Weekend PBoC Rate Cut

The Chinese Yuan hit a two-and-a-half year low against the US Dollar to start this week. The USDCNH surge was in response to an unexpected policy move by the People’s Bank of China (PBoC) on Saturday. The second cut to the country’s benchmark lending rate in four months (to 5.35 percent) is showing an uncharacteristic preference for broad monetary policy tools where historically the group has used more directed tool. This may be a sign of concern for the country’s economic slowdownand raises the probability of a shift to more unorthodox means.

Canadian Dollar Traders Question Whether BoC Can General More Volatility than RBA

After the tepid follow through from the speculative ranks after the RBA decision, interest surrounding today’s Bank of Canada (BoC) policy meeting is likely to be more reserved. Even before the Australian group surprised with a hold on policy, the market was cooler to the idea that Canadian authorities were going to pursue consecutive rate cuts. Looking at consensus forecasts from Bloomberg-polled economists, 22 percent expect the group to lower the benchmark another 25 percent. That creates a more distinct scenario break for market impact however. Holding will have an even more subtle impact on the Loonie than the RBA did on the Aussie. That said, should they actually cut, a far greater portion of the market would be caught off guard and thereby would need to reposition.

Emerging Markets: Brazilian Real Hits Decade Low Ahead of Rate Decision, Ukraine Raises Benchmark Rate to 30%

The Emerging Markets have seen an exceptionally busy start to the week. While the capital markets measured by the MSCI ETF may not reflect the tumult on the newswires, currencies are proving more sensitive. So far this week, the top news aside from the PBoC rate cut was Ukraine’s announcement that it would lift its benchmark rate from 19.5 to 30 percent in an effort to curb capital outflows. Meanwhile, the Russian Ruble gained 1.0 percent on the Dollar as international coverage over Ukraine moved off financial media outlets’ first pages. In monetary policy news, the Reserve Bank of India (RBI) announced an unexpected 25bp cut to its repo rate to 7.50 percent this morning. The Brazilian Real was the biggest movie on the day with a 1.3 percent drop versus the USD ahead of its own central bank decision (expected to be a 50 bp hike).

Gold Returns to $1,200 but is There Greater Value in a Stimulus-Destabilized World?

Gold lost traction on its record breaking run after the Federal Reserve’s first wave of stimulus leveled off. When the pace of expansion of the central bank’s balance sheet started to level off and its limitations made known, the precious started to lose significant ground. The US Dollar represents the world’s reserve currency, so its debasement was a strong motivation to drive funds already reeling from the Great Financial Crisis to an alternative store of wealth. Today, the Greenback has rallied substantially but many of its most liquid counterparts are attempting to compensate. With the ECB starting a QE program while the BoJ continues with its own and the PBoC makes pre-stimulus moves, the alternative appeal of the precious metal builds. Yet, perhaps that tipping point for a market made skeptical by congestion would be a disaster borne of the world’s cumulative stimulus efforts. From futures we saw open interest more than double from the late-2008 low to late-2010 peak of 651,000 contracts. Today, that interest stands at 407,000 with ETF demand slowly trying to rebuild. Perhaps there is interest/fear.

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ECONOMIC DATA

GMT

Currency

Release

Survey

Previous

Comments

00:01

GBP

BRC Shop Price Index (YoY) (FEB)

-1.2%

-1.3%

Contraction might be contributing to below target inflation growth. The current figure is the most negative since May 2013

00:30

AUD

Australia GDP (QoQ) (4Q)

0.6%

0.3%

GDP growth on a QoQ basis has been trending lower.

00:30

AUD

Australia GDP (YoY) (4Q)

2.5%

2.7%

1:35

JPY

Markit Japan Services PMI (FEB)

51.3

Figures showed a decline from prior figures, but it didn’t move the yen crosses or the Nikkei.

1:35

JPY

Markit Japan Composite PMI (FEB)

51.7

1:45

CNY

HSBC China Composite PMI (FEB)

51.0

Composite PMI has been trending lower since Sep 2014.

1:45

CNY

HSBC China Services PMI (FEB)

51.8

8:45

EUR

Markit/ADACI Italy Services PMI (FEB)

51.4

51.2

Has showed expansion for 10 months in 2014.

8:45

EUR

Markit/ADACI Italy Composite PMI (FEB)

51.4

51.2

8:50

EUR

Markit France Services PMI (FEB F)

53.4

53.4

This measures’ are final figures and not likely to be market moving. President Draghi is having a meeting on Thursday where he might discuss the proposed QE policy.

8:50

EUR

Markit France Composite PMI (FEB F)

52.1

52.2

8:55

EUR

Markit Germany Services PMI (FEB F)

55.5

55.5

8:55

EUR

Markit/BME Germany Composite PMI (FEB F)

54.3

54.3

9:00

EUR

Markit Eurozone Services PMI (FEB F)

53.9

53.9

9:00

EUR

Markit Eurozone Composite PMI (FEB F)

53.5

53.5

9:30

GBP

Markit/CIPS UK Services PMI (FEB)

57.5

57.2

Composite PMI has been trending lower but still shows strong expansion. Economic data has been recently outperforming economists’ expectations.

9:30

GBP

Markit/CIPS UK Composite PMI (FEB)

56.7

10:00

EUR

Retail Sales MoM (JAN)

0.2%

0.3%

Not likely to change the market’s expectation of future ECB monetary policy.

10:00

EUR

Retail Sales YoY (JAN)

2.3%

2.8%

12:00

USD

MBA Mortgage Applications (FEB 27)

-3.5%

A volatile measure.

13:15

USD

ADP Employment Change (FEB)

219K

213K

US labor market has been improving in 2014. This measure might give us an indication of the strength of the NFP numbers.

14:45

USD

Markit US Composite PMI (FEB F)

56.8

Final figures that isn’t likely to be market moving.

14:45

USD

Markit US Services PMI (FEB F)

57.0

57.0

15:00

CAD

Bank of Canada Rate Decision

0.75%

0.75%

The BOC unexpectedly cut interest rates in the last meeting due to concerns over the oil sector.

15:00

USD

ISM Non-Manf. Composite (FEB)

56.5

56.7

US economic data as indicated by the Citi US economic Surprise Index has been underperforming economists’ expectations.

GMT

Currency

Upcoming Events & Speeches

14:00

USD

Fed's Evans Speaks on Economy and Monetary Policy in Illinois

14:45

GBP

BOE's Bailey Speaks at Treasury Committee Hearing

18:00

USD

Fed Governor George Speaks on the U.S. Economy

19:00

USD

U.S. Federal Reserve Releases Beige Book

SUPPORT AND RESISTANCE LEVELS

To see updated SUPPORT AND RESISTANCE LEVELS for the Majors, visit Technical Analysis Portal

To see updated PIVOT POINT LEVELS for the Majors and Crosses, visit our Pivot Point Table

CLASSIC SUPPORT AND RESISTANCE

EMERGING MARKETS 18:00 GMT

SCANDIES CURRENCIES 18:00 GMT

Currency

USD/MXN

USD/TRY

USD/ZAR

USD/HKD

USD/SGD

Currency

USD/SEK

USD/DKK

USD/NOK

Resist 2

15.5900

2.6000

12.7000

7.8165

1.3800

Resist 2

8.7400

7.1000

8.4735

Resist 1

15.0000

2.5000

11.8750

7.8075

1.3650

Resist 1

8.4000

6.8500

7.8360

Spot

14.9182

2.4613

11.4851

7.7556

1.3568

Spot

8.3924

6.5787

7.5880

Support 1

14.3800

2.3900

10.2500

7.7490

1.3200

Support 1

7.5200

5.9100

7.2945

Support 2

13.6800

2.1900

9.3700

7.7450

1.2000

Support 2

7.3285

5.7775

6.7280

INTRA-DAY PROBABILITY BANDS 18:00 GMT

\CCY

EUR/USD

GBP/USD

USD/JPY

USD/CHF

USD/CAD

AUD/USD

NZD/USD

EUR/JPY

Gold

Res 3

1.1455

1.5624

119.81

0.9601

1.2589

0.7965

0.7618

136.10

1232.94

Res 2

1.1427

1.5585

119.53

0.9577

1.2558

0.7943

0.7595

135.72

1227.00

Res 1

1.1399

1.5546

119.24

0.9553

1.2527

0.7920

0.7572

135.35

1221.06

Spot

1.1343

1.5469

118.66

0.9505

1.2464

0.7875

0.7527

134.60

1209.18

Supp 1

1.1287

1.5392

118.08

0.9457

1.2401

0.7830

0.7482

133.85

1197.30

Supp 2

1.1259

1.5353

117.79

0.9433

1.2370

0.7807

0.7459

133.48

1191.36

Supp 3

1.1231

1.5314

117.51

0.9409

1.2339

0.7785

0.7436

133.10

1185.42

--- Written by: John Kicklighter, Chief Strategist for DailyFX.com

To contact John, email jkicklighter@dailyfx.com. Follow me on twitter at http://www.twitter.com/JohnKicklighter

Sign up for John’s email distribution list, here.

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